NAFTA Talks Offer Chance to Integrate Energy Policies

U.S. analysts and industry groups hope the upcoming talks to renegotiate the North American Free Trade Agreement will lead to more alignment between the energy policies of Canada, Mexico and the United States, particularly on trade and renewables.

In the NAFTA renegotiation objectives document dated July 17, the Office of the U.S. Trade Representative reiterated the importance of supporting North American energy security and independence.

One of the key issues concerns Mexico’s energy reforms. When the trilateral trade agreement was enacted in 1994, Mexico had constitutional restrictions on its energy sector. In 2013 and 2014, the country passed broad reforms that allowed transnational corporations to explore oil and gas in Mexico, putting an end to the government’s decades-long energy monopoly.

Scott Miller, senior adviser and Scholl chair in international business at the Center for Strategic and International Studies, said the United States and Canada should receive “most favorable nation status” when it comes to Mexico’s oil and gas exploration, as the two countries already have on other issues. Speaking at a panel discussion last week, Miller said those policies would “make it obligatory the sector is open rather than simply permissive.”

Miller said the renegotiations should still keep the investor-state dispute settlement mechanism, a system through which individual companies can sue countries for alleged discriminatory practices. He noted that Canada, for one, has had more cases filed against it than any other member of the Organisation of Economic Cooperation and Development.

The lack of unification in standards and subsidies for renewable energy could also pose challenges to the continent’s pursuit of energy integration. For instance, all three governments have different standards for what qualifies as renewable energy, as well as different subsidy policies regarding solar programs.

Andrew Shoyer, co-chair of the international trade practice at Sidley Austin LLP who also helped negotiate the initial NAFTA agreement, noted at last week’s CSIS event that the environmental and labor portions of NAFTA were finalized as side agreements when the trade accord was signed, due to the political need to push NAFTA over the finish line. That made those portions exempt from dispute settlement.

“A lot of people would expect, just like in the [Trans-Pacific Partnership], that those environmental disciplines will get pulled in — there would be a chapter — and they want that to be subjected to the same dispute settlements like everything else,” Shoyer said.

Despite any perceived deficiencies, the 23-year-old trade accord has brought North America to the verge of achieving energy self-sufficiency with respect to liquid fuels. The U.S. Energy Information Administration’s 2017 Annual Energy Outlook projects the quantity of petroleum and other liquid energy sources produced by Canada, Mexico and the United States will soon outpace the amounts those countries will consume.

“The U.S. is now the largest producer of oil and natural gas in the world, and this coupled with enhanced energy integration with Canada and Mexico will increase long-term U.S. energy and national security,” American Petroleum Institute President and CEO Jack Gerard said in a statement after the Trump administration released its NAFTA renegotiation objectives.

President Donald Trump in March approved the Keystone XL Pipeline to bring crude oil from Canada to the United States. The State Department announced June 29 that it had issued three presidential permits, including one for a new pipeline capable of delivering up to 108,000 barrels per day of refined petroleum products across the U.S.-Mexico border.

“NAFTA has played a critical role in North American energy security by facilitating cross-border trade and investment in energy, supporting millions of U.S. jobs in the oil and natural gas industry,” Gerard stated. “We encourage the administration and Congress to keep this in mind as they consider possible changes to the agreement.”